Which Credit Score is most widely used?

Credit Score Confusion Leads to Controversy

Excerpt:

While banks and other lenders may subscribe to or access many different scores, the FICO score, created by Fair Isaac Corp. , is by far the most widely-used, by more than 90% of lenders, according to the lawsuit. Its popularity is in part due to the fact that Fair Isaac developed the first general risk credit score in the late 1980s, says John Ulzheimer, president of consumer education at SmartCredit.com , a credit monitoring site. "It's really your FICO score that matters."

Comment: Sample (image above). Visit the MyFico site. For an explanation of the scoring.

One in four consumers now a poor risk for lenders

Americans’ credit scores at new lows

Excerpts:

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

...

FICO's latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO's 300-to-850 scale weren't as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual's score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

Comment: Article continues with the % of consumers with FICO scores above 800.

FICO score on "not using credit"

What happens when you have zero CC debt .... FICO score goes down. Makes no sense to me!

FICO score: Cancel a credit card?

How Much Does Canceling Credit Cards Affect Your Credit Score?

Excerpt:

While I generally check my credit report every 4 months or so, the last time I checked my credit score was November 2008. At that time, it was right at 740. Earlier this week, I checked my credit score again. I was pleasantly surprised to find out it was 730+!

Why would I be pleasantly surprised that my credit score has dropped between 5-10 points over the last 16 months? Because that’s when we stopped playing the credit game.

In early November 2008, Courtney and I not only canceled our credit cards, but also paid off our only non-student installment loan. The following month, we decided to take it a step further and close our final remaining credit card.

Comment: Be sure to read this article from MyFico (blog post refers to it).

Explaining credit scoring

Credit Scores: What You Need to Know Now

Excerpt:

Credit scores have been getting a lot of attention lately, as lenders tighten credit standards and contend with new legislation that has, among other things, reined in how credit-card issuers can raise rates.

Meanwhile, several firms, preying on our insecurities, are pushing credit scores and credit-score-tracking services for a monthly fee.

For all the attention they generate, though, credit scores are largely misunderstood. For instance, your precise score matters only when you're in need of new debt, like a home, auto or education loan or a new credit card, which should be a fairly rare occurrence.

You don't have just one score, but many. Your FICO score, the one developed by Fair Isaac Corp. that runs from a low of 300 to a high of 850, will vary depending on which credit bureau is reporting it and the kind of lender that requested it.

Comment: Why is it important? If you never intend to borrow it probably is not. But it you have a mortgage loan, auto loan, or any other kind of loan in your future; improving your score will enable you to borrow at a lower interest rate! Article has a helpful graph!

The crooked way to raise one's credit score

What’s Behind Those Offers to Raise Credit Scores

Excerpt:

For a $1,399 fee, TradeLine adds the borrower’s name to a stranger’s recently paid-off loan just before the account is closed. The account, with its perfect payment history, is then added to the borrower’s credit record in 30 to 45 days.

Ted Stearns, chief executive of TradeLine Solutions, said he came up with what the company calls its “seasoned primary accounts” program using a “loophole” in the law. Adding a single account can raise a credit score by 35 to 40 points, he said. But most clients purchase three accounts, at $1,399 for the first one and slight discounts for subsequent ones, to increase a score from say 560 to 700, he said.

The program’s concept, he said, is similar to someone’s buying a car and taking over somebody else’s car loan or lease account at the time of purchase — except, in this case, there is no balance on the account. The original borrower is unaware that a new name is being attached to the account, he said. Mr. Stearns defended his program. “I am a legal entity that conducts business throughout the state of California and the entire continental U.S.”

But Craig Watts, consumer affairs manager at the credit analysis firm Fair Isaac Corporation, said the program raised red flags.

“They’re falsifying the person’s credit history, and that’s one definition of loan fraud,” Mr. Watts said. Even if TradeLine has found a legal loophole to offer the program, the people using the program are knowingly raising their credit scores artificially when applying for a loan or refinancing, he said, adding, “If the borrower is deliberately misrepresenting himself and his credentials to the lender, that’s loan fraud.”

Comment: This legal “loophole” is fraud!

FICO: The fifth generation

New credit-score method forgiving

Excerpt:

Fair Isaacs Co. of Minneapolis, the company that devised the complex algorithm that computes the credit score used by 90 percent of the nation's top 100 banks, has tweaked it so that bad credit risks will be more broadly separated from the good ones.

The fifth generation of the formula comes at a critical time as lenders more closely scrutinize customers for creditworthiness following the collapse of the subprime mortgage sector.

"It predicts the likelihood a person will become 90 days late or more — seriously delinquent — on any credit obligation in the next two years," said Craig Watts, spokesman for Fair Isaacs.

The credit score has become as common as the penny. Everyone has one, and many haven't a clue what to do with it.

Visa USA recently found that two of every five consumers hasn't ever checked their credit score and have no idea if it's good or bad. And just one in five checked it at all last year.

Comment: Sad to think that ignorance of one's FICO score (in the story ... not the excerpt) could cost one $ 100 per month for 30 years!)

Loan-to-value ratio better than FICO!

Forget FICO, analyst says CIBC says loan-to-value ratios are better measure of risk for lenders

Excerpt:

Lenders trying to get a handle on risk in their mortgage portfolios will be better served by examining loan-to-value ratios, rather than individuals' credit scores which they have traditionally relied upon, CIBC World Markets warned Wednesday.

"The modern foundation of the lending market is about to be uprooted as FICO scores, the long trusted gauge for lenders in determining risk and price, will prove virtually meaningless in this credit cycle," wrote analyst Meredith Whitney in a research note.

FICO, short for Fair Isaac Credit Organization, measures individuals' creditworthiness by examining such factors as payment histories and debt levels.

Comment: This makes sense! FICO also ignores income.

Booklet: Understanding Your FICO Score

Understanding Your FICO Score

Synopsis:

This booklet provides a thorough description of credit scoring, including ways credit scoring can help you, the relationship between your credit report and your credit score, what a FICO® score considers, and interpreting your score.

Comment: PDF available for download from Fair Isaac ®

MyFico webinar

myFICO Webinars - Protecting your credit through the holidays

I was invited ... thought I would invite a friend!

More on FICO scoring:

MyFico homepage

Wiki: Credit score

Factors Affecting Your FICO Score